50 EMA and 200 EMA Simple Trading Strategies

Setting up a good trading strategy doesn't have to be complicated. These 50 EMA and 200 EMA trading strategies are good examples of that.

EMA stands for Exponential Moving Average. It is a technical indicator tool that moves along with the price movement and identifies the trend direction. EMA is slightly different than a Simple Moving Average (SMA), in which it puts more significance on the more recent prices so the indicator is known to be more responsive and faster-moving than the SMA.

Among the many periods of EMA, the 50 and 200 EMA are the most popular ones. Many traders utilize them individually or apply them simultaneously.

In this article, we would explain how to use 50 and 200 EMA individually. The 50 EMA is applied for a short-term approach, while 200 EMA is more suitable for a long-term trading strategy.

Let's get to the details of each strategy, starting with the 50 EMA.

50 EMA Strategy

The 50 EMA strategy is quite common for it is considered a medium or intermediate strategy that can be used for predicting both short-term price movements. The following steps need to be followed in order to buy or sell a position using the 50 EMA strategy:

Steps to Buy

1. Watch the market and wait for the price to cross the 50 EMA in an upward trend.
2. The candlestick that is formed after the price breaks the 50 EMA is your entry candlestick.
3. Place a buy order a few pips above the breakpoint of this candlestick. This can be anywhere from 2-5 pips. According to our EMA calculations, we are anticipating that the price would continue in an upwards trend after it breaks the high point of the candlestick.
4. As a safety precaution, we should also place a stop loss a few pips below the lowest point of the entry candlestick. This can be anywhere from 5-10 pips. Precautionary measures are extremely important in forex trading as we can never fully guarantee a market will follow the trend as predicted.

Steps to Sell

1. Watch the market and wait for the price to cross the 50 EMA in a downward trend.
2. The candlestick that is formed after the price breaks the 50 EMA point is your entry candlestick.
3. Place a sell order a few pips below the lowest point of the entry candlestick. This can be anywhere from 2-5 pips.
4. Place a stop loss a few pips above the highest point of the entry candlestick. This can be anywhere from 5-10 pips.

200 EMA Strategy

The 200 EMA strategy is one of the most popular Exponential Moving Averages strategies for long-term traders. It is used by traders who would keep a position running for months before closing it.

Professional traders often use this to predict what the price of an asset would be in a few months' time. The following steps need to be followed in order to buy or sell a position using the 200 EMA strategy:

Steps to Buy

1. Watch the market and wait for the price to cross the 200 EMA from below the line.
2. The candlestick that is formed after the price breaks the 200 EMA point is your entry candlestick
3. Place a buy order a few pips above the breakpoint of this candlestick, anywhere from 10-15 pips.
4. You should also place a stop loss a few pips below the lowest point of the entry candlestick, approximately 15-20 pips.

Steps to Sell

1. Watch the market and wait for the price to cross the 200 EMA from above the line.
2. The candlestick that is formed after the price breaks the 200 EMA point is your entry candlestick.
3. Place a sell order a few pips below the lowest point of the entry candlestick, anywhere from 10-15 pips.
4. Place a stop loss a few pips above the highest point of the entry candlestick, approximately between 15-20 pips.

Bottom Line

Both the 50 EMA and 200 EMA strategies have their own purposes. The 50 EMA would commonly be used by traders who prefer a single strategy for both short and long-term predictions. On the other hand, the 200 EMA strategy is strictly used by long-term traders.

With any strategy, there is never a full guarantee that the prediction will go according to plan. The market could surprise us and go the complete opposite of what we predicted. It is therefore important to also use a stop loss as we can never be too careful. We should also never rely on just one strategy during our forex journey.

It is always best to mix and match a couple of strategies in order to get the best results. You can combine price action with Fibonacci lines, indicators with candlestick analysis, and so on.